Primary version of this post, with visual content, at Barry Stocker's Weblog.
Nothing new for anyone who already knows their Adam Smith, but a lot of people are still surprised to hear that Smith criticised colonialism. Karl Marx, by contrast, endorsed British rule in India, though with considerable qualifications. The essential claim is that Asian societies are so backward that rule by Britain must be more progressive than self-government or rule by another Asian power.
The assumption behind the surprise at Smith’s position is largely that colonialism is something to do with ‘capitalist exploitation’, combined with the assumption that being pro-capitalist is inexorably connected with right-wing, or conservative views, on everything, particularly with regard to the power of the state in dominating territory.
There is nothing pro-capitalist about the state raising taxes to send administrators and military forces to other parts of the world. The belief that colonialism brings economic benefits to the colonisers, rests on the idea that state protected monopoly and coercion of coerced people to give up goods benefits the colonisers. Monopoly benefits monopolists, it certainly does not benefit consumers in the colonising country, which means it also does not benefit any branch of the economy affected by high prices in that monopolised good. State enforced monopoly directs stock (productive economic factors) towards an area of economic activity were it would not flow otherwise, this is intrinsically less efficient than allowing economic actors follow their own tests of market conditions, and profitable activities.
Forcible extraction of natural resources brings short term benefits to governments, and those with access to government favours. It only creates the illusion of benefit for the nation as a whole. Spanish and Portuguese imports of gold, from their American colonies, created inflation of gold so that people in Spain and Portugal could not purchase more than they could purchase before. The gold held by governments reinforced the power of despotic governments. Smith argues that the economically rational thing to do is to cut colonies loose, or confederate them with the colonising nation, on equal terms with regard to political rights and the burdens of financing the state. Unfortunately governments are too blinded by concerns with prestige to follow such policies. Where Smith refers to prestige, we might think about the economic interests of those employed by the state, and state hangers on, in diversion of resources to state expenditure of a wasteful kind.
Wealth is created by trade, administering the country with which are trading; and forcing it to trade on terms convenient for those with state power in the colonising country, harms both sides.
In his account of confederation, Smith refers to some ancient history. He suggests that the Romans could not confederate properly with conquered nations. If they did not give political rights to those people, they faced the costs of holding them down by force. Giving rights to other tribes in Italy, meant they had the right to attend popular assemblies in Rome. Under the Republic, Rome had a strong element of direct democracy in meetings of the tribes held to make up Rome. Once anyone could come to those meetings from anywhere in Italy, the meetings lost any proper political character. Not all Italians could be present, but those present could out weigh the votes of the real existing political community of Rome. This could not be solved because democracy then was always understood to be direct democracy. If Britain confederated with the American colonies, already in rebellion, as Smith suggests, then the Parliament would contain those elected from the colonies as well as Britain proper, on the same basis and with no disturbance of the democratic element of the constitution. Smith argues that direct democracy killed off the Roman Republic, which became an Empire under one deified chief.
Smith presents his arguments against colonialism in self-interested terms, but this really gives more weight to the ethical argument against colonialism. He is criticising coercion and lack of representative government, and gives this the soundest possible foundation in self-love. Self-love and benevolence both work best when seen as mutually supportive.